The News International Team
09:35am FII View on ECB
Andrew Garthwaite, Credit Suisse believes that although quantitative easing (QE) by the European Central Bank (ECB) is likely to be less effective than it was in the US and UK, it will be more effective than investors believe.
“We think the key transmission mechanisms are the exchange rate, fall in bond yields, re-valuing property, the fall in SME lending rates in the periphery and ultimately more securitisation. When QE does end, sovereign credit risks could become an issue. This is part of the reason we downgrade peripheral equities,” he adds.
09:15am Market Check
The market gained more than a percent in early trade on Friday following stimulus package announced by European Central Bank yesterday evening.
The 50-share NSE Nifty surpassed 8800 level for the first time, up 93.30 points to 8854.70 and the 30-share BSE Sensex rallied 364.49 points to 29370.51. However, the broader markets underperformed benchmarks as the BSE Midcap and Smallcap indices gained 0.5 percent each.
Nearly three shares advanced for every share declining on the Bombay Stock Exchange.
European Central Bank’s Mario Draghi announced a bond-buying programme worth over one trillion euros to stave off the deflation threat. The purchases will start on March this year and will last till September 2016.
Global markets cheered the ECB stimulus program with Asian markets trading higher. US stocks climbed on Thursday, extending gains into a fourth session, after the ECB expanded stimulus and as companies posted upbeat quarterly earnings. The CBOE volatility index fell 13 percent to 16.40.
European equities too closed with gains of over 1 percent. The euro, however, slipped to an 11-year low.
Back home, the rally was largely led by banking & financials stocks. Housing finance company HDFC climbed over 2 percent while banking majors ICICI Bank, State Bank of India and Axis Bank climbed 1-2 percent. Rival HDFC Bank gained 0.6 percent.
Tata Motors, which owns subsidiary in UK – Jaguar Land Rover, spiked 3 percent after the ECB move. Among others, ITC, L&T, Sun Pharma, Bharti Airtel, Wipro, M&M, Maruti, Hero Motocorp, Bajaj Auto, Tata Steel and Hindalco Industries jumped 1-1.6 percent.
However, GAIL was the only loser on the Sensex 30, down 0.8 percent.
The Indian rupee gained in the early trade today. It has opened higher 26 paise at 61.44 per dollar versus 61.70 Thursday.
Pramit Brahmbhatt of Veracity said, “Constant flow of FIIs, positive sentiment in the market and the ECB stimulus now will help local equities to trade at all-time highs. Taking cues from positive equities, the rupee is expected to appreciate. We expect the rupee to trade in a range of 61.20-62.20/dollar today.”
In other asset classes, Nymex crude futures jumped around USD 1 after Saudi Arabia announced news that King Abdullah had died. Brent was trading around USD 49.
From the precious metals space, gold prices rise above USD 1300 dollars an ounce post the ECB decision as gold is usually seen as a hedge against inflationary concerns.